DeFi ecosystem suffers heavy blow: Euler Finance attacked leading to significant losses for multiple projects

Euler Finance, as an innovative project in the Decentralized Finance sector, has garnered attention for its unique asset-layered lending model. However, the hacking incident that occurred on March 13 not only resulted in approximately $200 million in direct losses but also had a cascading impact on several related projects due to the composability of DeFi, leading to tens of millions of dollars in additional losses.

Angle Protocol is a decentralized stablecoin project that primarily issues the euro stablecoin agEUR. The project is estimated to have incurred a loss of $17.61 million in this incident. Although the project previously had a surplus, it still cannot fully cover the losses. The project team stated that the funds of agEUR holders, liquidity providers, and hedge token holders will be treated as a whole and compensated proportionally.

A certain decentralized trading platform lost $11.9 million due to bbeUSD (Euler Boosted USD). The platform's Boosted Pools innovative feature aims to enhance the yield for liquidity providers, but it also indirectly increased the scale of the losses in this incident. In addition to the directly related liquidity pools, multiple trading pairs using bbeUSD were also affected.

Idle Finance, as a yield aggregator, offers a variety of yield strategies. In this incident, its Best Yield Vault and Yield Tranches have a total risk exposure of approximately $10.99 million to Euler Finance. The approach of Idle Finance in choosing high-yield strategies has made Euler Finance an important partner, but it also increases the risk.

Yield Protocol is a fixed-rate lending protocol, with part of its liquidity pool built on Euler. It is expected that the funds deposited in Euler were less than $1.5 million before the attack on Euler. Fortunately, the collateral of the borrowers remained unaffected due to being held in Yield Protocol.

Other affected projects include Yearn, Harvest, Inverse Finance, SwissBorg, Opyn, and Sense Finance. These projects have suffered varying degrees of losses, more or less due to their direct or indirect association with Euler.

It is worth mentioning that the DeFi security provider Sherlock has approved a proposal to compensate Euler with $4.5 million and has executed a payout of $3.3 million.

This incident once again highlights the double-edged sword effect of composability in the DeFi ecosystem. While composability brings significant innovation opportunities and efficiency improvements to DeFi, it also increases systemic risk. When a key node encounters issues, it can trigger a chain reaction that impacts the entire ecosystem.

This event also reminds us that while pursuing high returns, we cannot ignore the importance of security. DeFi projects need to pay more attention to risk management and security audits during the design and implementation process to better protect the safety of user assets.